On the Road to China

SK Telecom to buy $1bln China Unicom bonds to enter China's CDMA business

SK Telecom agreed on strategic cooperation on overall mobile business and signed a strategic alliance framework agreement with China Unicom(www.chinaunicom.com, CEO Chang Xiaobing), the second-largest mobile operator in China.
With the approval of the board of directors on June 20, SK Telecom will sign the agreement at China Unicom in Beijing on June 21 in the presence of Kim Shin-bae and Chang Xiaobing and senior executives from both companies.
Moreover, SK Telecom has concluded to buy $1 billion worth of CB (Convertible Bond) of China Unicom Limited (CUHK), a listed enterprise of China Unicom in Hong Kong. CUHK owns 100 percent of the shares of China Unicom Corporation Limited (CUCL), a substantial mobile operator in China.
With a three-year expiration period, CB can be converted into stocks after a year from the issued date. If converted, SK Telecom acquires 6.6 percent of the whole shares of CUHK.
In the agreement, SK Telecom and China Unicom consented to cooperate in various fields such as handset sourcing, value-added service and platform developing. To strengthen the partnership, they will run a mutual council and a common organization, provide mutual consulting and market information, and share know-how.
In addition, SK Telecom and China Unicom applied a principle of mutual exclusiveness to the agreement that SK Telecom gets sole and exclusive partnership in China until the end of 2007.
The partnership is significant not only in that it is SK Telecom's first step entering China, the world's biggest market, but also as it represents the success of Korea's leading communications service provider in acquiring prior occupation of the Chinese mobile market which will soon open its doors as a result of WTO.
Compared to direct stock investment, CB investment gives SK Telecom the flexibility to react to Chinese policy environment such as the 3G operator appointment in the Chinese mobile market, not to mention helps minimize risks in the investment. In this manner, China Unicom can be regarded as an important partner to SK Telecom.
Kim Shin-bae, the CEO of SK Telecom, said, "Chinese mobile market has great potential both in quality and quantity. With this partnership, we look forward to making significant development in CDMA business of China Unicom. At the same time, SK Telecom is ready to enter Chinese market."
"The combination of world's largest market and world's finest technology will mark a new era in CDMA market worldwide and will also be a turning point for Chinese CDMA business."
"By embodying and speeding up the cooperation of Korean-Chinese telecommunications, this agreement will facilitate both countries to interact in various fields. It will also give us a firm foothold to expand our global business in near future," he expects.
Along with the agreement, Korean affiliations such as competent handset manufacturers, content providers, and solution developers are expected to branch out into the Chinese market. Their entrance will contribute rapid advance to China's telecommunication industry.
SK Telecom has high hopes in the growth potential of the Chinese mobile communications market which is expected to reign in around 600 million new subscribers within the next three years. The neighboring country has also shown great interest in the selection of the 3G mobile operator and the popularity of new value-added services. With these current trends, SK Telecom anticipates the strategic alignment will bring a positive economical effect to the domestic IT market.
As of Dec 2005, China has the biggest mobile market in the world with a 30.3 percent subscription rate, meaning the country has 393 million mobile phone users. (Including PHS subscribers, the subscription rate scores 36.3 percent, in other words 480 million subscribers.) The subscriber growth rate was recorded to be 42% in 2002, and 30% in 2003.
China Unicom is the second-largest mobile operator in China with 130 million subscribers. The company started CDMA service in 2002 with CDMA subscribers exceeding 34 million as of April 2006. The company's CDMA business went into the black in the third quarter of 2005.
Thus, the combination of SK Telecom's technology and killer contents and China Unicom's large subscriber base is expected to create great synergy.
SK Telecom and China Unicom have been partners since 2001 under a contract of global roaming service. In 2004, they established a joint venture called UNISK, China's first value-added service provider to offer wireless internet service.
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Kim Shin-bae, president & CEO of SK Telecom